Question

Our company had the following balances and transactions during the current year related to merchandise inventory.

Beginning merchandise inventory on January 1	120 units at $70 per unit
Purchase on February 14	100 units at $85 per unit
Sale on August 21	120 units

What would be the company’s ending merchandise inventory in dollars on December 31 if the company used perpetual, weighted average (WA) costing method?

$9,900

$7,000

$9,218

$7,682

Answer 1

It is given that perpetual average costing method is used . Therefore let's compute the weighted average cost before further computation. Weighted average cost is obtained by dividing total cost of inventory with total units of inventory available.

Here, the total cost of inventory may be computed as following

Units of beginning inventory= 120

Unit cost of beginning inventory=$70/unit.

Therefore total cost of begining inventory= 120*$70

I.e= $8,400.

Units of inventory purchased= 100 units.

Unit cost of inventory purchased=$85/unit.

Therefore total cost of purchased inventory= 100*$85

I.e= $8,500

Total cost of inventory = Cost of beginning inventory+Cost of inventory purchased.

I.e = $8,400+$8,500

I.e =$.16900

Now total units of inventory available= No of units of beginning inventory+Number of units of purchase

I.e = 120+100

I.e =220 units.

Weighted average cost=Total cost of inventory/ Total number of units.

I.e= $16,900/220

I.e =$76.81/unit

Number of units sold during August =120 units.

Therefore closing inventory units at December= Units of inventory before sales- Units sold.

I.e= 220units- 120units

I.e = 100 units.

Average cost per unit= $76.81/unit

Therefore ending merchandize inventory in dollars= Units of closing inventory*Average cost/unit

I.e=100*$76.81

I.e =$7681